IPO Analysis · Mainboard · 12 August 2026

Behari Lal: profit up 22%, volume down 1%, cash down 55%.

Profit rose 22% in FY26. Sales volume fell 1.07%. Operating cash flow fell 55.5%. All three are in the same prospectus, and together they are the honest description of the year.

The business

Behari Lal Engineering Limited, formerly Behari Lal Ispat, has been operating since 1995 from Mandi Gobindgarh, Punjab. It makes alloy steel products, metal rolls, engineering castings, forging ingots and forged shafts and blocks, sold into automobiles, infrastructure, railways, power, aerospace and defence.

Two divisions: the SMS & Foundry Division and the Rolling Mill Division, across two facilities on Amloh Road.

One structural point worth stating early, because it separates this offer from most on this site: the offer is made under Regulation 6(1) of the SEBI ICDR Regulations. This is a company with a profitability track record, not one using the loss-making route.

Customer concentration is genuinely good. The top 10 customers were 38.00% of revenue in FY26 — against 71.56% for Dhoot Transmission and 83.26% for Molbio. Repeat customers were 84.69% of revenue. Both are real strengths.

Two caveats on that, for exactness. Repeat-customer revenue fell from 86.10% in FY25, and the customer count fell from 563 to 552. And the RHP states the company does not enter into long-term contracts with its top 10 customers.

The volume story

Revenue rose 5.14% while volume fell 1.07% and production fell 2.69%. Every rupee of FY26 growth came from price and mix, not from selling more steel.

The mix shift is real and documented. High-value products — engineering castings, metal rolls, and alloy grades including valve steel, die steel and tool steel — went from 44.65% of revenue to 57.78% in two years. EBITDA per tonne rose 55% across the period, to ₹11,494.66, while tonnage stalled.

That is the strongest thing in this filing, and it carries a caveat. A re-mix is a one-time gain, not a compounding one. There is only so far the mix can shift before the company needs volume again — and volume is currently going backwards.

The divisions also moved in opposite directions. SMS & Foundry ran at 94.47%, close to capacity. Rolling Mill fell from 88.24% to 82.02%. Blended utilisation slipped from 90.30% to 87.71%.

The numbers

PAT rose 80.6% in two years, from ₹35.79 crore to ₹64.64 crore, and the EBITDA margin expanded from 13.67% to 18.97%. The balance sheet is close to unlevered: debt to equity of 0.06x and net debt of ₹16.64 crore against ₹101 crore of EBITDA.

Two things temper that. RoCE and RoE both fell in FY26 despite profit rising 22% — net worth grew faster than earnings. And other income was ₹12.49 crore, 2.29% of total income and up 49% year on year; strip it out and the operating margin is materially below the headline 18.97%.

The cash flow problem

This is the sharpest fact in the filing. Profit rose 22% to ₹64.64 crore. Operating cash flow fell 55.5% to ₹27.54 crore. The conversion of EBITDA into cash collapsed from 76.1% to 27.2%.

The cash flow statement says where it went: inventories absorbed ₹23.29 crore and receivables absorbed ₹22.26 crore during FY26.

Inventory is the problem, not receivables. Inventory days rose 68% in two years — 34 to 57 — while sales volume fell. Inventories are now 28.38% of total assets.

On receivables the record is better than commonly claimed: receivable days are 60 in FY26 against 67 in FY24, and bad debt written off was ₹1 lakh, effectively 0.00% of revenue. The modest rise from 56 to 60 days is worth noting; describing it as a sharp deterioration would not survive the disclosure.

Who is selling

Against an anchor allocation price of ₹285, the largest promoter seller’s cost basis is ₹1.12 per share.

That is not an accusation. Founders of a business operating since 1995 legitimately hold shares at a nominal base, and a partial exit at listing is normal and legal. But it answers the question of who is selling and on what basis, and it makes the structure of this offer plain: roughly 69% of the money raised goes to existing holders, and about 31% funds capital expenditure, debt repayment and general corporate purposes.

Valuation

FY26 diluted EPS is ₹16.56. Net asset value per share as at 31 March 2026 is ₹78.41.

At the ₹285 cap that is roughly 17.2x earnings; at the ₹271 floor, about 16.4x. Price to book at the cap is about 3.6x.

This is the bull case, and it is the part almost nobody is discussing. On these figures the issue prices below the cheapest company in its own RHP peer set and at roughly 55% of the industry average — for a business earning 27.11% on capital employed with a 0.06x debt-equity ratio.

The peer group named in the RHP: Jayaswal Neco Industries, AIA Engineering, Steelcast, RHI Magnesita India, Vardhman Special Steel, IFGL Refractories and Kennametal India.

Anchor report

Grey market premium

The premium has risen sharply since 10 August. That tells you what the grey market expects of the listing. It tells you nothing about inventory days or cash conversion. If this call would change because the GMP changed, it was never a real call.

Pros and cons

My view: applying, for listing gains

I am applying for the Behari Lal Engineering IPO, and I am applying for listing gains. That is a disclosure of my own position, not a recommendation for yours — and the qualifier matters. It is a different claim from saying I would hold this for five years.

The reasoning is the valuation gap. On my calculation the issue comes at roughly 17.2x FY26 earnings, below the cheapest company in its own RHP peer set and at about 55% of the disclosed industry average, for a business earning 27.11% on capital employed with almost no debt. Add a documented mix shift that lifted EBITDA per tonne 55%, and customer concentration at 38% that is genuinely better than most of what has listed this year.

What stops me calling this a long-term holding is the cash. Operating cash flow fell 55.5% while profit rose 22%, and the cause is inventory: 34 days to 57 days while volume went backwards. A business that converts only 27% of EBITDA into cash is not yet compounding, whatever the profit line says. Add that volume actually fell, that the margin gain is a one-time re-mix, and that roughly 69% of my money goes to existing shareholders.

And the anchor book is thin. Eleven investors and three mutual fund schemes is not the institutional endorsement seen on the other offers covered here. I would rather say so than dress it up.

What I am watching after listing

1. Inventory days. 57 in FY26, from 34 two years ago. This is the number that turned profit growth into weak cash.
2. Operating cash flow to EBITDA. 27.2% in FY26 against 76.1% in FY25. Recovery here fixes most of the bear case.
3. Sales volume. Down 1.07%. The mix shift cannot carry another year on its own.
4. Rolling Mill utilisation. Down to 82.02% while SMS & Foundry runs at 94.47%.
5. High-value product share. 57.78% and rising — how much further can it go?
6. Whether other income keeps flattering the margin. ₹12.49 crore and up 49%.

A listing scorecard for this call will be published on 26 August 2026, whatever the outcome.

Not SEBI registered. This is not investment advice and is not a recommendation to buy or sell any security. Financial, operating and offer figures are sourced from the Red Herring Prospectus of Behari Lal Engineering Limited dated 6 August 2026; anchor figures from the company’s allocation intimation to BSE and NSE dated 11 August 2026. The price band, lot size and listing date are from the price band advertisement and broker platforms. The price-to-earnings multiples in the valuation section are my own calculation, not an RHP disclosure; the industry P/E range and peer list are disclosed in the RHP. Grey market premium is third-party data and is not a filing. Conversions from ₹ million to ₹ crore and all growth rates are my own calculations. Please read the prospectus and conduct your own research before investing.